The BCU paused the downward interest rate cycle to consolidate inflation in the target range

The BCU paused the downward interest rate cycle to consolidate inflation in the target range

February 22, 2024 – 17:18

In its first meeting of 2024, Copom decided to maintain the MPR at 9%, after 2023 where the decrease was 250 basis points.

Photo: Uruguay Country Brand

He Central Bank of Uruguay (BCU) decided to keep the interest rate in 9%, after the first meeting of the year of the Monetary Policy Committee (Copom), that begins to define what the entity’s strategy will be for 2024, based on the level of inflation and your expectations.

In this way, Copom focuses on the new year after leaving behind a 2023 where the BCU led at the regional level the reduction of the Monetary Policy Rate (TPM), taking it from 11.5% in April to the current 9%, in a cut of 250 basis points.

When basing your decision, from the BCU They specified that the definition seeks to “contribute to consolidating the inflation within the target range”, while aiming to “continue the convergence of its expectations” at 24 months to the center of the range.

The evaluation occurs in moments where the inflation It is at 5.09% annually and has been below 6% for eight consecutive months. In turn, the inflation expectations of economic agents gives an average of 6.41%, which, although it implies that they are above the target range, remains at historical lows.

“Short-term projections suggest that inflation would continue to slow in the coming months,” the experts anticipated after the Copom meeting.

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A positive assessment of the direction of the economy

For its part, Copom highlighted that the economic activity showed an increase in the last quarter from the rebound in agro behind the drought and echoed that short-term projections suggest that the economy would continue growing in the next two quarters.

Thus, he made a “positive assessment” of the permanence of the inflation in the range, as well as the gradual convergence of the expectations towards the center of the objective range and the general functioning of the transmission channels of monetary policy.

The analysis of the situation in the United States, Brazil and Argentina

On the other hand, BCU specialists stated that “activity is slowing down less than expected” at the international level, due to the fact that global inflation “it stopped the reduction that it had shown in recent months, particularly in the core component.”

Specifically, Copom echoed that the United States Federal Reserve (Fed) decided to maintain its reference rate and the probability of a first cut was reduced.

At the regional level, he noted that “the activity in Brazil showed less deceleration than anticipated”, while considering that “in Argentina a high level of uncertainty remains,” although he assessed that “the new government is making macroeconomic corrections.”

Source: Ambito

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